Warning: Dodgy coin offerings could tar reputation of blockchain technology
Singapore
"DO not collect $200. Go straight to jail."
This line may well be the one to toss to some folks behind the frothy market for initial coin offerings (ICOs), said panellists at a forum at the Singapore FinTech Festival on Wednesday, in warning that the ICO trend is threatening to tar the reputation of blockchain technology.
Brad Garlinghouse, the chief executive of cross-border payments fintech Ripple, in referring to the ICO market as a new-fangled form of public crowdfunding, said: "I think some people may be going to jail. The hype is so far out there."
He told The Business Times separately that there are very few ICOs out there that are trying to solve actual problems.
Taavet Hinrikus, who started remittance fintech TransferWise, also warned that the ICO hype will hurt the blockchain community, adding that many ICOs "look like scams with a dollar-sign for the S".
Instead of selling company equity to investors, ICO issuers are raising public funds by taking in well-known cryptocurrencies or fiat money in exchange for their own brand of currencies, known broadly today as digital tokens.
Different forms of ICOs have popped up in recent months, including those fronted by celebrities. For example, US rapper Ghostface Killah, part of the famous rap group Wu Tang Clan, has set up a cryptocurrency firm to raise some US$30 million through an ICO.
Mr Garlinghouse described ICOs as the democratisation of angel investing, but cautioned that angel investing involves assessing the people behind certain ventures.
"Angel investing has worked because such investors back people they know and trust. If someone in Singapore is investing in an ICO that is based in Miami, you are investing in a person you don't know. You don't even know if there's a person behind it," he said.
The panellists called for ICOs to be separated from the discussion on blockchain technology. Mr Garlinghouse said that it has been a disservice by industry watchers to brand alternative forms of payment as "anti-fiat" - incidentally, the philosophy behind Bitcoin - as blockchain technology is able to cut the cost and time behind cross-border settlements.
Singapore has had a headstart in blockchain technology, for which the panellists credited the progressive approach taken by the Monetary Authority of Singapore (MAS). The regulator this week published its list of guidelines for ICOs, outlining case studies for which digital tokens will be considered securities.
For example, if a property development firm plans to raise funds to develop a shopping mall by offering digital tokens, with each token representing a share of the firm, that token will be regarded as a share and constitute as securities under the Securities and Futures Act.
Tim Grant, chief executive of blockchain-focused firm DrumG Financial Technologies, recalled that it was only in August 2016 that he talked to Deputy Prime Minister Tharman Shanmugaratnam and MAS managing director Ravi Menon about putting Singapore-dollar payment transfers on a blockchain. (At that point, Mr Grant was representing blockchain firm R3.)
In just over a year, Singapore has already moved to the second phase of its blockchain project Project Ubin, which will be connected to a similar blockchain project from the Bank of Canada.
Mr Grant said: "That was a 30-second conversation. This can be done."
